Finder is committed to editorial independence. While we receive compensation when you click links to partners, they do not influence our content.

How to save for a house deposit

Strategies, tips and clever ideas to help you get a deposit together and buy your home.

Saving the deposit to buy a property can take years, especially with New Zealand property prices increasing. However, with financial discipline and some creative tips, you can build up a deposit for your mortgage faster than you think.

Here’s what you need to do.

Three steps to saving a deposit for a home

1. Determine your deposit size. Get a rough idea of what you need to save.

2. Get serious about saving. Set a budget and find ways to cut back.

3. Get help with your deposit. Government help, family assistance and more

1. Determine your deposit size

The typical house deposit is 20% of the property price, but many lenders accept as low as 10% or even 5%.

However, be aware that a smaller deposit means borrowing more money and paying more interest over time. Also, when your deposit is less than 20%, you may need to pay (LMI), which can add thousands to your costs.

Your deposit size

There are two parts to a property purchase: the deposit (the amount you save) and the loan (the money you borrow). How much deposit you need depends on the loan for which you qualify.

A great way to work out how much you might be able to afford is by looking at how much rent you pay now. Then, use a mortgage repayment calculator and see how mortgage repayments compare to your rent.

For example, on a $480,000 mortgage at 2.5%, mortgage repayments are around $1,900 per month. How does this compare to your rent?

A mortgage of $480,000 could go towards a house worth $600,000 if you’re lucky enough to have a 20% deposit of $120,000. However, here are a few different ways your deposit scenario could play out:

With a 5% deposit

  • Property price: $600,000
  • Deposit: $30,000 (a 5% deposit)
  • Loan amount: $570,000
  • Plus LMI of around $23,000

With a 10% deposit

  • Property price: $600,000
  • Deposit: $60,000 (a 10% deposit)
  • Loan amount: $540,000
  • Plus LMI of around $13,000

With a 20% deposit

  • Property price: $600,000
  • Deposit: $120,000 (a 20% deposit)
  • Loan amount: $480,000
  • No LMI payable

That LMI premium of $13,000 is pretty steep on a 10% purchase. However, with a 5% deposit, you pay an LMI over $23,000 – almost as much as you’ve saved as a deposit!

These are eye-watering sums. On the plus side, you may be able to add these premiums to your mortgage, so you don’t have to find the money upfront.

Read more on how much you should save for your deposit

2. Get serious about saving

Once you have your deposit goal in mind, it’s time to get serious about saving. Here are some basic, essential tips:

  • Examine your spending. Track your spending using an app, such as PocketSmith and get a detailed breakdown of what you spend each month.
  • Set a budget. Using your spending breakdown, set a realistic budget and work out how to cut your current spending.
  • Pay off urgent debts first. Get any debt under control as fast as possible. Prioritise high-interest debt first: student debt is much less critical than credit card debt.
  • Maximise your savings. Put your money to work while building your deposit with a high-interest savings account, or consider putting some of your savings in a term deposit.

If you have an asset you could sell, like a car you don’t need or some shares, you might consider selling them and putting the money towards your deposit.

3. Get help with your deposit

Daughter and her father saving money together.Beyond saving more and spending less, there are some ways you can scrape a deposit together you might never have considered.

Several of the tips below require family wealth. We understand that this can be a beneficial resource for some borrowers and entirely impossible for others. But while not all of the tips below apply to all borrowers, even one could be a big help:

  • Parental guarantor. If your parents own their home and are willing to guarantee part of your deposit, you can avoid LMI and save a smaller deposit. Read our guarantor mortgage page for more information.
  • Cash gift. If your parents are able and willing (and we understand this is not often the case), they could provide a cash gift to boost your deposit there. You need to be aware of just a few rules, such as providing a signed declaration from the person stating that the money is a gift and not a loan requiring repayment.
  • Live with parents. This tip also involves family help – but if it’s possible to live back at home for a short while so you can put your saved rent towards your mortgage, that could fast-track your deposit goals.
  • First Home Grant. The government gives a cash grant for first home buyers. You usually need to buy an existing or newly built home under a specific price to qualify. If eligible, you can use the grant to form part of your deposit.
  • First Home Loan scheme. First time home buyers can take out a home loan for only a 5% deposit through select banks and building societies around the country. The project includes Westpac, ASB and Kiwibank.
  • Kiwisaver withdrawal. If you have Kiwisaver, you can use some of it under the Kiwisaver First-home Withdrawal to use towards your deposit. You must have belonged to the scheme for at least three years.

More helpful guides for hopeful first home buyers

More guides on Finder

Go to site